Question

Kuai,

I need help in this part:


Debt:
227,000 7.4 percent coupon bonds outstanding, 25 years to maturity, selling for 109 percent of par; the bonds have a $1,000 par value each and make semiannual payments.

Common stock:
8,500,000 shares outstanding, selling for $70.70 per share; the beta is 1.2.

Preferred stock:
447,000 shares of 6 percent preferred stock outstanding, selling for $80.70 per share.

Market:
8 percent expected market risk premium; 6 percent risk-free rate.

The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of 3 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI’s project.

PLEASE HELP ME STEP-BY-STEP!